MUMBAI: RBI Governor Raghuram Rajan is leaving no stone
unturned in his efforts to end promoter abuse of the benign
loan restructuring regime and is soon poised to mandate all
banks to stick to uniform loan classification norms.
Three people familiar with the idea said the governor, who has
been meeting bank chairmen over the past two to three weeks
independently and some in groups, has said lenders should
share information about defaulting clients. Rajan is building a
repository of information about defaulters that could help
banks ensure they do not get duped by unscrupulous
promoters.
"Promoters do not have a divine right to stay in charge
regardless of how badly they mismanage an enterprise, nor do
they have the right to use the banking system to recapitalise
their failed ventures," he had said at his first press conference
after taking charge.
The Indian banking system, especially state-run banks, is
facing a continuous downgrade by ratings companies such as
Standard & Poor's and Fitch because of rising bad loans and
concerns that many restructured loans could turn bad.
The absence of a repository is believed to have led to some of
the biggest losses to banks. Kingfisher Airlines and Deccan
Chronicle Holdings, which together inflicted losses of more
than Rs 11,000 crore, might have been prevented if the banks
had shared information and a repository was in place.
Deccan Chronicle Holdings, which went public in 2004, took
loans from several banks to expand the circulation of Deccan
Chronicle newspaper in several cities and started a new
business newspaper, Financial Chronicle. However, the
slowdown affected the company's expansion plan and
profitability.
"Nobody knew how much Deccan had borrowed from the
banking system. Today, Cibil has information on all borrowers.
However, if banks share this information with RBI, it would get
information on the banking system's indebtedness to
companies," said Romesh Sobti, managing director and chief
executive officer, IndusInd Bank. Numbers compiled by the
Corporate Debt Restructuring Cell shows loans worth Rs
2,29,013 crore of 401 companies have been restructured as
of March 2013.
Indian banks' stressed assets rose to 9.1% of total loans (NPL
ratio: 3.4% and restructured loans ratio: 5.7%) in fiscal 2013,
from 6.1% a year before, says Fitch Ratings.
The latest RBI initiative comes after the banking system had to
write off loans worth Rs 12,000 crore given to Deccan
Chronicle and Kingfisher.
"The move to set up a repository is a proactive step to prevent
fraud," said SK Kalra, executive director of Andhra Bank.
"Secondly, this will make it difficult for borrowers to conceal
from lenders the loan they have taken from other banks in
case the loan is availed through multiple banking routes."
Currently, under the consortium banking route, each lender is
mandated to inform all lenders about the loans on their
books. However, in case of multiple banking facility, lenders
are unaware of loans a borrower has availed from other
banks.
Conflict between private and public sector lenders and
qualification of assets are also delaying the recovery process.
"If one bank treats it as a standard asset, the company can
always approach that bank for fresh funding," said a state-run
banker who did not want to be identified. "In the case of
Kingfisher, since the company is non-operational now, that
risk is not there."
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